By James Ebert – Chief Appraiser, Los Angeles
- Appraisals 101
An appraisal may seem like a simple, fast process. An appraiser shows up at your house for a short time, takes some photos, notes and measurements, and that’s it. However, the home visit is only a part of the appraisal process. In fact, a typical appraisal report requires 12 to 13 combined hours by appraiser and staff to complete.
At times, a MLS-listed home might even go through more than one escrow, as a pending sale. The first buyer might cancel if the appraisal comes in low, and does not support the full purchase price. The back up buyer can now move up, and complete the escrow of the purchase on the home, even negotiating for some repairs to be made by the seller, and in some cases, putting down a greater down payment, to “seal the deal” In other situations, the buyer and seller might agree to a purchase price in between the initial high “feeding frenzy” offer of asking price, and the slightly lower more well-supported final appraised market value.
This type of situation happens all the time. In 2020, Appraisal issues are the cause of 18% of real estate contract delays, second to only issues relating to obtaining financing. There’s no getting around the home appraisal if your buyer is taking out a mortgage to purchase your home. You also can’t wave a magic wand to raise the fair market value of your house. It’s worth what it’s worth, but that doesn’t mean you shouldn’t educate yourself about the appraisal process.
What’s the point of an appraisal?
The objective of an appraisal is to provide an ‘independent and impartial analysis of real property’, according to the National Association of Realtors. To come up with an accurate value gauge, the appraiser conducts deep research of the comparable sales data and uses an on-site visit to verify the home’s size, features, and condition.
What can you do to prepare for a home appraisal?
The appraiser shows up to do a critical job and there are things you can do to be prepared for their approval: Deep clean the inside of your home; deal with any issues related to pests and pets; Secure your pets; Spend an afternoon cleaning up the yard; Touch up your paint on the outside of your home (appraisers factor peeling paint into evaluation); Don’t water the lawn or run the sprinklers (appraisers don’t want to track mud into you home and they need to measure around the outside of your house to get measurements.
What do appraisers look for in a home?
Neighborhood demographics, housing trends in the area and available utilities. Exterior considerations include: measurements and details about the home, property condition, noting upgrades made to the property, structure, age, location, property site, construction quality, roof and foundation integrity, gutters and siding, parking, exterior condition. Interior considerations include: square footage, functional layout, number and size of bedrooms, bathrooms and kitchens, included utilities, health and safety accoutrements, appliances, interior condition, structural integrity, code compliance. The appraiser will take the measurements and photos, find comparable properties nearby, and compile all the information into a uniform appraisal report that pegs the home with a real-world selling price.
How long does a home appraisal take?
An on-site appraisal process inside the home can take anywhere from one to several hours.
When do you get the results of the home appraisal and how long is the it relevant?
Typically, the report takes 7-10 days or as long as a few weeks. The report will contain local comparable properties, photos and details, the appraised value, how the appraiser determined the value and what factors the appraiser took into consideration. An appraisal report can remain relevant anywhere from 90-180 days.
- Steps of an Appraisal
Home appraisers value property by doing a walk-through of the house and then using one of two standard valuation methods: either the “sales comparison approach” or the “cost approach.” Occasionally, an appraiser might apply both valuation methods in an effort to pinpoint an extremely accurate value. A home appraisal provides the best determination of a home’s value.
The walk-through: This is the first step in a residential home appraisal and easily the most important part of the entire process. During this step, the appraiser visits the home and performs a visual inspection of the inside and outside of the property. He also notes things that add value such as amenities and upgrades. Unlike other forms of home valuation, such as reports put together by real estate agents, home appraisals are prepared by licensed home appraisers. These professionals look at a variety of factors when valuing real estate. Among other things, they consider a home’s size, layout, and how well it has been maintained. They also factor in surrounding properties and recent sales of similar homes.
Exterior: The appraiser usually begins by visually inspecting the house’s exterior, examining the overall structure and assessing the materials used to construct the home. He will pay close attention to the home’s foundation to determine if there are any cracks or signs of water damage. Although a home appraiser is trained to look for obvious signs of disrepair, he is not a home inspector.
Interior: Although the appraiser doesn’t assess a home’s value based on décor, a clean, well-maintained home will show better than one that is cluttered and dirty. Staging the home can dramatically increase its value. Appraisers look at the essential building materials used to construct the inside of the home, including flooring, light fixtures, windows, and doors. The appraiser also considers the square footage and number of bedrooms.
Amenities: While the appraiser is inside, he will look at the home’s amenities, which include all the little extras that make a house more comfortable. Amenities like central air conditioning, carbon monoxide detectors, security systems, and custom window treatments set a house apart from other properties and can increase market value.
Upgrades: Major upgrades can dramatically raise a home’s price. The home appraiser will consider things like new kitchen cabinets, appliances, or countertops. Likewise, a recently remodeled bathroom can add thousands of dollars to a property’s appraised value. If you upgrade your home, it’s important to keep your receipts and invoices so you can prove how much you spent on materials and labor.
Second Step Creating the Appraisal Report: Lots of factors go into an accurate appraisal report such as neighborhood demographics, housing trends in the area and available utilities. Exterior considerations include: measurements and details about the home, property condition, noting upgrades made to the property, structure, age, location, property site, construction quality, roof and foundation integrity, gutters and siding, parking, exterior condition. Interior considerations include: square footage, functional layout, number and size of bedrooms, bathrooms and kitchens, included utilities, health and safety accoutrements, appliances, interior condition, structural integrity, code compliance. The appraiser will take the measurements and photos, find comparable properties nearby, and compile all the information into a uniform appraisal report that pegs the home with a real-world selling price.
The Report: Home appraisals cover a home both inside and out and every detail in between. The goal is to get the most accurate snapshot of the house’s current condition. When the appraiser is finished, he prepares a detailed analysis of the property and assigns it a market value. At minimum, the home appraisal report will include: A description of the exterior and interior of the property and any major improvements, A brief description of the home’s setting, such as a new development or rural property, the home appraiser’s opinion of the quality of the neighborhood and surrounding area, a statement regarding available area amenities, such as access to parks, shopping, schools, and public transportation, a list of at least three comparable homes that have recently sold in the area and an analysis of their features, and Identification of any problem areas that seriously detract from the home’s value, such as mold or a structural defect.
When to Expect The Report: This is the final step in the appraisal process. Typically, the report takes a few days or as long as a few weeks. The report will contain local comparable properties, photos and details, the appraised value, how the appraiser determined the value and what factors the appraiser took into consideration. An appraisal report can remain relevant anywhere from 90-180 days.
- Determining Property Value?
After the walk-through, the home appraiser will apply one of two valuation methods to assign a final value to the home, the sales comparison approach and the cost approach. In some cases, an appraiser might use a combined approach to get the most accurate number possible.
By far the most popular appraisal method, the sales comparison approach determines a home’s fair market value by comparing it to similar homes that have recently sold in surrounding neighborhoods. Professionals in the industry often refer to these properties as comparables.
Because no two houses are exactly alike, the appraiser factors in price adjustments for all the differences between the comp homes and the house being appraised, which is referred to as the ‘subject property.’ For example, if “comp A” has granite countertops and the subject property has laminate, the appraiser subtracts the value of the granite from the subject property’s total value. The appraiser continues to make adjustments for several comps, raising or lowering value based on differences in lot size, amenities, fixtures, appliances, finishes, and overall upkeep.
The cost approach attempts to calculate the cost of replacing the entire home using local construction materials and labor. Using the following steps, the appraiser calculates what it would cost to rebuild the home from the ground up.
First, the appraiser determines the value of the lot. He estimates the cost of reproducing the home. He considers the home’s age and condition to calculate depreciation. He subtracts the depreciation figure from the total replacement cost of a brand new structure. He adds in any external improvements, such as pools, landscaping, storage sheds, and decks. He adds the lot value to the total value of improvements and depreciated value to arrive at an accurate replacement cost.